The demand for gold soared to the level of the Great Depression

13 May 2016
Global demand for gold in January-March soared up 16% compared with the previous quarter and by 21% in annual terms - up to 1289.8 tons, being a record for the first three months of the year since records began, according to a report of the World Gold Council published on Thursday. The main buyers were stock investors - through exchange-traded ETF, they bought 363.7 tons of the precious metal - 14.5 times more than last year. Together with the bars and coins total investment demand for gold has increased by 122% - up to 617.6 tons. Investors perceiving gold as a way to invest, bought nearly 80% of all mined gold in the world (774 tons for the quarter).
As a result, for the first time in several years, the market of physical gold became scarce: in view of the scrap production, demand exceeded supply by 155 tons.
Investor interest in gold has come close to the levels seen during the Great Depression, said the WGC. The reason for that is reducing to historical lows in yields of government bonds. Some securities market rates are in negative zone – in other words, customers have to pay extra fees to keep their money in these instruments, instead of getting income. "Various programs of quantitative easing and other unconventional monetary policy measures have led to the fact that now about $ 10 trillion in long-term and short-term sovereign bonds with a negative yield are drawn in the world markets", says the analyst of VTB Capital Neil MacKinnon.
According to the International Rating Agency Fitch, annually investors lose on these securities $ 24 billion. In these circumstances it is not surprising that big business is looking for ways to other investments, said the WGC. The dynamics of the gold market in the beginning of 2016 resembles unclenched spring: after a protracted correction, lowered the price by 44% for 5 years, the quotes popped, gaining more than 20% by April. "A key factor in this rally was the implementation of the accumulated demand from invectors who have been looking for an opportunity to re-enter the market", says the WGC report.
Splash of investor demand was so powerful that more than compensated for the decline in other components: in the jewelry industry – by 19%, in technology, and by the Central Banks – by 3%. "From the beginning of February, hedge funds increased their net long positions in gold futures and options over five times," said Dmitry Kolomytsyn, raw-exchange strategist of Sberbank CIB. According to him, gold may continue to rise in price, if the macroeconomic data show a low probability of increase of FRS rate in June.